The EHT is a payroll tax imposed pursuant to the Employer Health Tax Act on all employers who have a permanent establishment in Ontario. An exemption from the EHT is available for eligible employers (or an associated group of employers) such as:
- private sector employers;
- organizations that receive financial assistance from the government (but are not under government control); and
- crown corporations subject to tax under Part I of the Income Tax Act (Canada).
Prior to January 1, 2014, the annual exemption is available on the first $400,000 of an eligible employers’ payroll (or an associated group of employers), regardless of the size of the employer or the associated group of employers. Any payroll over the exemption threshold amount is subject to the EHT at 1.95%.
The proposed legislation (Bill 105) introduced by the Ontario government to implement changes to the EHT exemption for eligible employers was approved by the Ontario Legislature on December 12, 2013. Thus, the following changes to the Ontario EHT are effective January 1, 2014:
- The exemption threshold amount is increased from $400,000 to $450,000, which will provide small businesses with greater EHT relief of up to $975 per year;
- The exemption threshold amount is adjusted for inflation every 5 years using the Ontario Consumer Price Index; and
- The EHT exemption is eliminated for private sector employers (or an associated group of employers) with annual Ontario payrolls over $5 million. This change results in larger employers paying additional EHT of $7,800 – $8,775 per year. Registered charities including those with payrolls over $5 million continue to be eligible for the exemption.
If your business pays EHT in instalments, you would adjust your instalments in 2014 to account for these changes.
The article is not intended to provide advice, recommendations or offers to buy or sell any product or service. The information provided in this article is compiled from our own research and is based on assumptions that we believe to be reasonable and accurate at the time the article was written, but is subject to change without notice. Readers are encouraged to contact us for further details or analysis relevant to their particular circumstances. Readers should not rely on this article without seeking professional advice on any Canadian tax matters.
Claudia Ku is a Chartered Accountant and has been a full time tax practitioner for over 19 years. Claudia has substantial practical knowledge and experience in many different tax practice areas and in advising all types of clients from regional owner-managed business to multinational inbound and outbound public and private corporations and high net worth individuals worldwide.